Top tips for ICO due diligence
Participating in an ICO, an acronym for Initial Coin Offering, can prove to be immensely profitable. If you have invested in NXT (NEXT) and participated in its ICO in September 2013, you would have experienced a 1,400,000% increase. Yes, that is a million-percentage increase which is more than having your investment’s value grow by 10,000-fold.
In fact, you can check, ICOstats, a very useful website that tracks the movement of cryptocurrencies since their inception. Initial Coin offering usually raise funds on the Ethereum cryptocurrency. You have to decide whether an Ethereum investment in 2018 or an ICO can give you the most returns.
However, some investors learned the hard way that participating in an ICO does not guarantee you a Lamborghini. In fact, an ICO can look like a steal when in fact it is stealing your hard-earned money or cryptocurrency.
With a website that looks professional, some advertisements in YouTube and other advertising platforms it is very easy to fall for an ICO scam. There are so many complaints about an ICO being a scam that Facebook announced that Facebook will not advertise any cryptocurrency to protect the people who use Facebook.
Countries also see ICO’s as something that is unsavory, with China and South Korea banning any ICO to happen within their borders. The trading of a cryptocurrency is still valid, but no ICO can happen with their jurisdiction.
To protect yourself from getting scammed, here are a few tips that you can do to protect yourself from ICO scams.
Look at the team
Once you have heard of an incoming ICO, the first thing that you should check is the people behind it. Interestingly enough, most cryptocurrencies related to lending with a referral bonus do not show who the lead developer is or the people who manage it. Bitconnect and Ucoincash are examples of cryptocurrencies that do not show management behind themselves.
If you go to a cryptocurrency website, they have an “about team” page where they would show who are the team behind the coin and their credentials. If you want a cryptocurrency with a solid team, look at Cardano (ADA), which has a team filled with academicians with PHDs from different countries and universities.
Another example of a Cryptocurrency with a solid team is Tron (TRX) who is headed by Justin Sun who is a protégé of Alibaba’s founder and Chinese Billionaire Jack Ma.
Read or at least familiarize yourself with the White Paper
The white paper is a document where a cryptocurrency is described. It functions like a business plan, a dissertation and a roadmap all into one. All cryptocurrencies have a white paper. If the ICO in question does not have a whitepaper, it is best that you turn away.
Even if you cannot understand the coding and programming jargon found in the white paper, reading the comments about it can be very revealing. For instance, if developers have commented that the whitepaper is basically a rehash of a different cryptocurrency, it is best if you move away from it.
Investigate the transparency of the domain owner and the code
Again, you do not need to be an expert on computer languages or be a hacking genius.
To view the legitimacy and source of the site, you can use WHOIS or InterNIC. You can see the expiration date of the site and other important information. You can see that some websites have an active website period for only a year and some will not have any privacy features on the site. These should be red flags that a site may not be reliable as you thought it would be.
Regarding the transparency of the code, you can go to GitHub and search if the code or technology is there. Most cryptocurrencies will claim that they are an open-source protocol with their code available for anyone to scrutinize.
However, some ICOs will actually say that they are open-source but they have no files or document to show. That should be a cause of worry.
By doing all three tips, you can be assured that you getting in an ICO scam will be reduced, if not erased completely. It is best to surf around the web and read the discussions of the community, like the reddit for cryptocurrency. You can also check ICO bench which gives a rating for every ICO.
Nothing beats doing your homework, and please do not invest more than what you can afford to lose.